Riley Exploration Permian, Inc. annual report, FY2018

Filing identity and period

The supplied filing is Tengasco, Inc.’s Form 10-K for the fiscal year ended December 31, 2018, filed March 28, 2019. This does not match the requested company, Riley Exploration Permian, Inc.; the summary below reflects the filing text provided.

Tengasco explored for and produced oil and natural gas, primarily in Kansas. In January 2018, it sold its Manufactured Methane facility assets, reporting that business as discontinued operations. Its continuing revenue and reserves were principally tied to Kansas oil production.

Financial results and key metrics

• Continuing revenue rose about 25%, mainly because the average oil price received increased to $59.48 per barrel from $45.43. Oil sales volume fell to 98.2 MBbl from 102.4 MBbl.
• Production costs and taxes were $3.591 million; depreciation, depletion and amortization was $795,000; general and administrative expense was $1.245 million. Operating margin was approximately 4.1%, versus an operating loss in 2017.
• Continuing-operations operating cash flow was $1.293 million. Continuing investing activities used $1.023 million, mainly for drilling and polymer work. Cash from the methane-asset sale contributed $2.658 million to investing cash flow, producing total investing cash flow of $1.635 million.
• Year-end current assets were $4.347 million and current liabilities $548,000. The company had no Prosperity Bank borrowings, with a covenant-limited available credit amount of approximately $2.74 million. It had $124,000 of vehicle debt and $2.179 million of asset retirement obligations.
• Proved oil reserves increased to 1.094 million barrels from 870,000 barrels. The filing attributes the increase primarily to higher assumed oil prices; the reserve-report price rose to $60.21 per barrel from $45.83. The 10%-discounted standardized measure was $13.976 million, up from $8.170 million.

Changes, outlook, and risks

• The $2.65 million methane-asset sale generated a reported $1.165 million gain in discontinued operations. The business contributed only $6,000 in revenue in 2018 after the sale date, compared with $580,000 in 2017.
• Continuing results improved with higher oil prices and lower depletion expense, partly offset by lower sales volumes and increased production and administrative costs. A $157,000 other-income item reflected removal of aged Hoactzin-related balances determined unenforceable under applicable limitation statutes.
• Management stated that 2019 operating revenue and methane-sale proceeds were expected to fund operating and administrative costs and support covenant compliance. Additional funding options described include drawing the available credit facility, issuing shares, or selling assets. The next borrowing-base review was expected in April 2019. The filing provides no formal earnings or production guidance.
• Production declined naturally in several leases; polymer treatments and completion of one operated well partly offset the decline. Of two operated wells drilled in 2018, one became productive; three non-operated wells did not become productive.
• Key risks include oil-price volatility, reserve and production declines, the borrowing base’s dependence on reserve values and lender redeterminations, concentrated purchasers, limited access to capital, and environmental, permitting, drilling, and plugging liabilities. Two purchasers represented 85.6% and 13.8% of 2018 revenue.
• The filing reports no pending material legal proceeding. It describes potential operational claims raised by related party Hoactzin that remained under discussion; a separate $386,000 BSEE civil penalty was affirmed and paid in 2015. Chairman Peter Salas controls approximately 49.8% of the shares and controls Hoactzin, making related-party transactions and governance relevant investor considerations.
• No oil or gas derivatives were open in 2018. Management reported effective disclosure controls and internal control over financial reporting; the auditor did not provide an internal-control attestation.

Important facts for investors to verify

1. Confirm the filing applies to the intended issuer: the supplied document names Tengasco, Inc., ticker TGC, not Riley Exploration Permian, Inc.
2. Review the audited financial statements and notes for the discontinued-operation sale proceeds, gain, and cash-flow treatment, and distinguish continuing earnings from total net income.
3. Assess whether production, realized prices, and operating cash flow can be sustained; reserve growth and valuation were substantially price-sensitive.
4. Check the April 2019 borrowing-base review, available credit, covenant compliance, and ability to fund capital spending and asset-retirement obligations.
5. Evaluate purchaser concentration, the status of Hoactzin-related matters and transactions, and the impact of controlling shareholder ownership.
6. Verify subsequent events disclosed in the filing: a January 2019 equipment-inventory sale for $150,000, with a stated expected gain of $45,000, and share issuance to directors and the interim CEO/CFO.